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Post date: April 30 2002

Spitzer Responds To Rep. Richard Baker's Letter To The Sec

In responding to U.S. Rep. Richard Baker's letter to SEC Chairman Harvey Pitt, Attorney General Spitzer issued the following statement:

We believe there is a strong need for uniformity in our national securities markets. That is the common goal for regulators and all parties interested in protecting the investments of working men and women. To that end, my office has had productive meetings with, and we plan to continue working with the SEC and other regulators to implement nationwide reforms.

Prior to an investigation of the brokerage industry that we announced on April 8th, it was abundantly clear that no serious fundamental reforms were occurring in the industry to address conflicts of interest in the securities markets.

Respectfully, the hearings conducted by the Capital Markets subcommittee failed to elicit any of the evidence necessary to bring about such reforms. Moreover, no other regulatory body stepped forward to prevent abuse from occurring.

As Attorney General, my office prosecutes violations of the law. Merrill Lynch, as evidenced by our investigation, violated the Martin Act – New York State's securities law. We will continue to vigorously proceed with our case against Merrill Lynch, while viewing this matter as a possible catalyst for broader structural reform in the securities industry.

In our view, institutional reform should include the following measures: sever the linkage between analysts' compensation and investment banking; strengthen the firewall between investment banking and research and strengthen oversight and monitoring of research and research analysts to detect and protect against non-objectivity and external pressure.

I have said that although it is a good start, the proposed regulations by the NASD and the NYSE fall short of what should be legislated in this area. While the proposed rules make progress on disclosure obligations, it should be noted that the proposed structural changes were already largely in effect at Merrill Lynch, while Merrill's analysts were issuing manipulated ratings."